The oracle of the Internet has spoken, and the news is not good for the record companies: Esther Dyson thinks Napster is bad news for the record industry.

Speaking at the Silicon Alley 2001 conference yesterday, the chairman of EDventure Holdings said, “The music industry’s business model must change, because a lot of the fans and musicians hate them. When people steal from you and nobody minds, that’s a sign.”

Showing little sympathy for the slower-moving elements of the record biz, Dyson said the writing was on the wall for the record companies, because Napster proved that a lot of costs could be removed from the industry.

She wasn’t optimistic for a smooth transition to a world of subscriber-based digital-file sharing, either. “It’ll be messy till we get there.”

On the subject of ICANN, the domain name administration group she chaired until recently, Dyson said there had been mistakes.

“We were mostly hostile to change,” she said. She blamed it mainly on ICANN’S non-Americans, who were not used to being “grilled on panels.”

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Napster remains the hottest topic in cyberspace a year after hitting the mainstream and a day before it faces the music in appeals court.

Andreas Schmidt the CEO of Bertelsmann’s e-Commerce group, which has loaned Napster money in the hope of legitimizing the file-sharing service, did his best to play down any sense of conflict between Bertelsmann and the four music-industry titans who refuse to play ball with Napster.

Schmidt reminded the audience that Bertelsmann had deals with AOL back when it was the No. 3 online service, so it knew a thing or two about subscriptions, which he sees as the media-payment model of the future.

“Napster is a very sticky site; people stay in the chat rooms and read each others’ top-10 lists. Our research with Harris Interactive found people are spending 24 hours a month on Napster and buying an average of nine CDs, where once they bought five.”

A show of hands demonstrated that practically everyone in the room had the Napster client on their computers. Another quick poll showed that around half would pay $10 a month for an improved Napster.

Schmidt said the version rolling out in the summer should have fewer incomplete downloads, a better interface and faster response.

“The copyright issue must be solved,” he emphasized, and revealed that Napster founder Shawn Fanning has figured out a security system that will work like a checking account, with royalties based on whether files are in use.

He added that the impetus for the Napster deal came after he and Thomas Middelhoff realized, to their amazement, that nobody in the music industry had much of an idea how the technology would evolve.

“We called some friends in Silicon Valley, we had some coffee with Napster, they used their whiteboards” and six weeks later: “We had a deal.”